Company Reports

We read Frasers Logistics and Commercial Trust’s third-quarter fiscal 2024 (ending September) business update positively. Overall, it aligned with our expectations, and we retained our fair value estimate of SGD 1.14 per unit. Based on the last closing price, we think the trust is undervalued and trades at an attractive fiscal 2024 distribution yield of 7%.

Frasers Logistics & Commercial Trust’s fiscal 2024 first-half net property income of SGD 159 million was slightly below our expectation, making up 46.9% of our full-year estimate. However, the impact on distributions per unit was offset by the distribution of SGD 13.5 million of divestment gains, and the trust’s DPU of SGD 0.0348 was in line with our expectation. The miss in the NPI was due to lower NPI margins for the commercial properties, where average occupancies remain under pressure, and higher nonrecoverable land tax for the Australian logistics and industrial properties. We cut our near-term NPI margin estimates but expect margins to recover by the end of our forecast period as the commercial assets’ occupancy rates should gradually recover. Our DPU forecasts remain broadly the same as we expect management to continue to top up its distribution with divestment gains to keep DPU relatively stable. As such, we keep our fair value estimate at SGD 1.14 per unit. Based on the current price, we think the trust is undervalued, trading at an attractive fiscal 2024 distribution yield of 7%. We think that the weakness in its commercial portfolio has been priced in, with a 24.6% decline in its unit price over the last 12 months. We like the trust for its portfolio of logistics and industrial properties that benefit from favorable supply/demand market dynamics and expect this segment, which makes up 71% of the portfolio, to drive the trust’s performance over the near to medium term.

Frasers Logistics & Commercial Trust invests in income-producing logistics, industrial, and commercial properties across Singapore, Australia, Germany, the Netherlands, and the United Kingdom.

Frasers Logistics & Commercial Trust’s, or FLCT’s, first-quarter fiscal 2024 (ending September) business update was generally in line with our expectations. Compared with the previous quarter, the portfolio occupancy rate slightly declined to 95.8% from 96.0% due to lower occupancies at 357 Collins Street in Australia and Farnborough Business Park in the United Kingdom. Meanwhile, its logistics and industrial portfolio continues to remain 100% occupied, driven by favorable market demand and supply dynamics. First-quarter fiscal 2024’s rental reversion numbers came in very strong for its logistics and industrial portfolio at a positive 31.3%, while its commercial portfolio registered a positive 3.7%. As these indicators are largely within our expectations, we maintain our fair value estimate at SGD 1.14 per unit. Although we continue to like FLCT for its logistics exposure, which benefits from robust underlying demand supported by higher e-commerce penetration, we think the units are fairly valued at the current price.

Frasers Logistics and Commercial Trust's, or FLCT's, fiscal-year 2023 (ending September) results were below our expectations with net property income, or NPI, coming in 6% below our estimate. The miss is largely attributed to currency headwinds and lower-than-expected NPI margins due to higher energy and utility expenses. The trust also took a bigger-than-expected write-down on the fair value of its investment properties, writing off SGD 359 million from its balance sheet. The largest decline came from its commercial portfolio that was down 8.8% year on year due to higher vacancy rates, cap rate expansion, and translation impact. Meanwhile, its logistics and industrial portfolio's valuation was down 2.8% year on year, with cap rate expansion offset by strong rental growth of its Australian properties. While the fair value write-down is a noncash adjustment, we think it reflects a lower value that can be crystallized by the trust in the event of a divestment.

Frasers Logistics & Commercial Trust, or FLCT, invests in income producing logistics, industrial and commercial properties across Singapore, Australia, Germany, the Netherlands, and the United Kingdom.

Sabana REIT’s unitholders have voted to remove ESR Group as its manager and internalize the REIT management function. This move is unprecedented in Singapore, but we think it has positive implications for the industry. This event occurred because activist investor Quarz Capital led the push. As ESR Group holds around 21% of Sabana REIT compared with Quarz Capital’s 14%, ESR Group only held a slight advantage going into the vote. Ultimately, we think ESR Group lost the vote because of concerns about potential conflicts of interest—ESR Group is the sponsor of more than one industrial REIT in Singapore—and the perception that Sabana REIT has underperformed its peers due to poor management by ESR Group.

Frasers Logistics & Commercial Trust’s, or FLCT’s, third-quarter fiscal 2023 (ending September) business update was generally in line with our expectations. Management expects cap rates to shift up by 50 basis points or more in the upcoming fiscal year-end property valuation exercise, which would place downward pressure on valuations. That said, management thinks this could be partly offset by the strong market rental growth for logistics properties in Australia and, to a lesser extent, Europe. We expect limited impact on the trust’s logistics portfolio valuation even as cap rates are expanding, but we anticipate its commercial portfolio to see a small decline in valuation. We factor in 50 basis points of yield expansion in our exit cap rate assumption for both its commercial portfolio (up from 25 basis points previously), and logistics portfolio (from no cap rate expansion). This is offset by a higher rental growth assumption for its Australian and Europe logistics portfolio. Consequently, we reduce our fair value estimate to SGD 1.19 from SGD 1.24 after the model update. We think the units are fairly valued at the current price. We forecast fiscal 2023 distribution yield of 5.7% (based on the last closing price of SGD 1.24), and this should be underpinned by FLCT’s healthy balance sheet and logistics exposure, which benefits from robust underlying demand coming from the strong secular tailwinds of e-commerce.

Frasers Logistics & Commercial Trust, or FLCT, invests in income producing logistics, industrial and commercial properties across Singapore, Australia, Germany, the Netherlands, and the United Kingdom.

Frasers Logistics and Industrial Trust’s, or FLCT’s, first-half fiscal 2023 (ending September) revenue and net property income declined by 11.7% and 14.0%, respectively, due to the divestment of Cross Street Exchange in March 2022 and foreign currency headwinds. These were slightly below our expectations, making up 47% and 46% of our full-year estimates for revenue and net property income, respectively. The miss is largely due to larger-than-expected foreign translation losses. We updated our model accordingly and our fiscal 2023 distribution per unit, or DPU, is lowered to SGD 0.0718, implying a dividend yield of 5.3% based on the last closing price of SGD 1.36. Our fair value estimate remains unchanged at SGD 1.24 per unit. Although we like the trust for its strong balance sheet and exposure to the robust Australian logistics and industrial market, we think the shares are unattractive currently and investors should wait for a better entry price.

Frasers Logistics & Commercial Trust, or FLCT, invests in income producing logistics, industrial and commercial properties across Singapore, Australia, Germany, the Netherlands, and the United Kingdom.

Frasers Logistics & Commercial Trust, or FLCT’s, first-quarter fiscal 2023 (ending September) business update was generally in line with our expectations. Compared with the previous quarter, portfolio occupancy rate was slightly pulled down to 95.9% from 96.4% by its U.K. business park portfolio that saw three tenants exercising their lease breaks to downsize their footprint at Maxis Business Park, or MBP, resulting in MBP’s occupancy rate declining to 66% this quarter from 100% in the previous quarter. That said, its logistics and industrial portfolio continues to demonstrate its resilience and remained 100% occupied.

Frasers Logistics and Commercial Trust’s, or FLCT’s, second-half fiscal-year 2022 (ending September) results were below our expectations with net property income, or NPI, coming in 11% below our estimates. The miss is largely due to 1) the further strengthening of the Singapore dollar against the Australian dollar, euro, and British pound, 2) timing differences in the booking of service charge expenses following a service charge reconciliation exercise, and 3) additional landlord costs for its Europe assets. Nevertheless, second-half distribution per unit, or DPU, fell only 2.8% year-on-year despite a 11.6% year-on-year decline in second-half NPI (partly due to the loss of contribution from the divested Cross Street Exchange), aided by lower finance expense and management’s decision to distribute divestment gains of SGD 5.35 million.

Frasers Logistics & Commercial Trust, or FLCT, invests in income producing logistics, industrial and commercial properties across Singapore, Australia, Germany, the Netherlands, and the United Kingdom.

Frasers Logistics & Commercial Trust, or FLCT invests in income producing logistics, industrial and commercial properties across Singapore, Australia, Germany, the Netherlands, and the United Kingdom.

Frasers Logistics and Commercial Trust’s, or FLCT’s third-quarter fiscal 2022 (ending September) operating performance was generally in line with our expectations. However, with the Monetary Authority of Singapore increasing the rate of appreciation of the Singapore dollar to manage imported inflation, we are seeing higher foreign currency risk exposure for the trust as 90% of its real estate assets are based outside of Singapore. In particular, the euro and British pound have depreciated around 8% against the Singapore dollar. While FLCT manages the impact of foreign exchange volatility through hedging foreign income on a six-months rolling basis, we think this may not be sufficient and expect a distribution per unit, or DPU erosion of circa. 3% for fiscal 2023. We are also raising the exit cap rate used to compute the terminal value of FLCT's portfolio on the back of the more aggressive U.S. federal-funds rate hikes to combat inflation. Our projected long run federal-funds rate is 1.75%. To capture the lower expected real estate value that can be crystallized by FLCT through an asset sale, we are reversing our expectation of a 25-basis-point yield compression (to reflect the tight acquisition yield environment) that we previously baked in. After taking these into account, our fair value estimate is lowered to SGD 1.44 from SGD 1.72, while our fiscal 2022 DPU estimate is lowered slightly to SGD 0.0775. This imputes a forward fiscal 2022 distribution yield of 5.4% based on our fair value estimate. While we continue to like FLCT‘s portfolio of logistics and industrial assets that is benefiting from the strong secular demand from e-commerce, we think the positives have been priced in and the trust is fairly valued at current price.

No-moat-rated Frasers Logistics & Commercial Trust’s first-half results were within our expectations. The trust delivered net property income of SGD 183.6 million, improving 2.1% against the same period last year. The increase was due to the contribution of assets acquired in June last year, partly offset by some divestments as well as lower exchange rates. FLCT declared a first-half distribution per unit of SGD 3.85 cents, improving 1.3% against last year despite a larger unitholder base after the placement in May last year. We have fine-tuned our acquisition and Singapore dollar/euro exchange rate assumptions for fiscal 2022 and lowered our fiscal 2022 DPU forecast to SGD 7.87 cents from SGD 8.02 cents. This represents a distribution yield of 5.5%. Our fair value estimate of SGD 1.72 per unit is unchanged.

Frasers Logistics & Commercial Trust is a real estate investment trust focusing on logistics and industrial, central business district commercial, office, and business park assets. It was established following the merger between Frasers Logistics and Industrial Trust and Frasers Commercial Trust in April 2020 and now owns 97 properties across Singapore, Australia, Germany, the Netherlands, and the United Kingdom.

Frasers Logistics & Commercial Trust, or FLCT’s, first-quarter fiscal 2022 (ending September) performance was generally in line with our expectations. Compared to the previous quarter, portfolio occupancy rate was slightly pulled down to 95.9% from 96.2% by its commercial portfolio that saw a 80 basis points decrease to 91.0%. This was due to lower occupancy rates in its Singapore commercial assets, such as Cross Street Exchange and Alexandra Technopark. That said, its logistics and industrial portfolio continues to demonstrate its resilience and remained 100% occupied. First-quarter fiscal 2022’s rental reversion for its industrial and logistics assets continues to remain in the negative region at negative 10.2%, as expiring Australian and German logistics and industrial leases are rebased to the lower market rates on renewal. On the other hand, FLCT’s commercial assets saw a positive 4.0% rental reversion due to its United Kingdom and Singapore assets clocking in strong positive 21.7% and 3.6% rental reversions, respectively, to offset the negative 37.2% reversion recorded in Australia. As these indicators are largely within our expectations, we maintain our fair value estimate at SGD 1.72 per unit and our no-moat and stable moat trend ratings are unchanged. We think the units are undervalued at the current price and we continue to like FLCT for its logistics exposure, which benefits from robust underlying demand from the strong secular tailwinds of e-commerce.

We are transferring coverage of Frasers Logistics and Commercial Trust, or FLCT, with no-moat and stable moat trend ratings. We raised our fair value estimate to SGD 1.72 from SGD 1.68 following an update to our model to reflect the recycling of capital unlocked from Cross Street Exchange into higher yielding investments. We have also factored in a higher near-term cost of debt to take into account future interest rates hikes. Our valuation implies a forward dividend yield of 4.6% in 2022. We think the units are attractive at the current price, and we like the portfolio's shift toward higher weight in logistics and industrial assets that benefits from the strong secular tailwinds of e-commerce, which drive leasing demand.